Supporters of this view also forget, like Tugan-Baranowski, the father of pure ‘disproportionism’, that unlimited growth of department I leads to ever faster growth of the productive capaity of department II (although not necessarily in the same proportion); in other words, that under capitalist commodity relations production can never fully emancipate itself from sales to the final consumer.103 Thus theories of ‘pure disproportionism’ are as wrong as ones of ‘pure under-consumptionism’. The basic causes of periodic crises of over-production are, at one and the same time, the inevitable periodic decline of the rate of profit, the capitalist anarchy of production, and the impossibility under capitalism of developing mass consumption in correlation with the growth of the productive forces.

As we have explained elsewhere,104 the basic curse of capitalism – the fact that surplus-value embodied in commodities can only be realized if they are sold at their value – implies the presence of an insoluble contradiction at a given point of expanded reproduction. Any measure which tries suddenly to reverse the decline of the rate of profit provokes a shrinking of the market of ‘final consumers’. And any attempt suddenly to reverse that shrinking accentuates the decline of the rate of profit. Capitalist growth and prosperity require both a rising rate of profit (of currently realized as well as anticipated profits) and an expanding market (as present reality and future trend). But the coincidence of these conditions can never be permanent, for the very forces which bring it into being at a given point in the trade cycle work towards its undoing at a subsequent stage.105 In that sense, crises of over-production are unavoidable under capitalism. According to even the most optimistic hypothesis, ‘anti-cyclical policies’ can only reduce their scope temporarily; they cannot prevent the very ‘moderation’ obtained during one period from leading, in the long run, to more explosive side-effects (such as the cumulative movement of inflation, or the precipitate growth of the burden of company debt).106

The objective logic of crises of over-production, connected with the operation of the law of value, is clarified by an important remark made by Marx in Capital Volume 2.107 Equlibrium of the process of expanded reproduction presupposes that commodities are sold at their value, or more precisely, at the value they had at the moment of their production. However, the very dynamic of expanded reproduction involves regular revolutions in technology, unceasing attempts by industrialists to win the competitive struggle by reducing their costs of production and growing substitution of machines for manual labour. All these phenomena, which are translated into regular increases in the average labour productivity of most branches of production, imply a tendency for the value of each commodity to decline. Seen in this light, crises of overproduction are nothing other than objective mechanisms through which the adjustment of market prices to declining commodity-values is achieved.108 Capital thereby incurs important losses (i.e. devalorizations of capital), whether directly, through the reduction in value of commodity capital, or indirectly, through the bankruptcy and closure of the least efficient firms.

Marx further stresses in Capital Volume 2 that there exists a nexus between the trade cycle and the turnover cycle of fixed capital which is distinct from the usually mentioned one of determination grosso modo of the length of the former by that of the latter. Fixed capital expenditure is discontinuous in a double sense. Machines are replaced not piecemeal (except, of course, so far as current repairs are concerned) but in toto, say once every seven or ten years. Their replacement tends to occur at the same time in numerous, inter-connected key branches of industry, precisely because the process is not only, or even essentially, a function of physical wear and tear,109 but rather a response to financial incentives to introduce more advanced technology. (The principal criteria of profit calculation are here: availability of sufficient money capital reserves; rising rate of profit and profit expectations; and the existence and/or anticipation of a sudden market expansion.) These incentives coincide only at a certain point in the trade cycle; but when this occurs, there follows a massive investment in the renewal of fixed capital. This in turn sets up a dynamic of accelerated capital accumulation and economic growth, together with rapid expansion of markets, which leads finally to an increase in the organic composition of capital, a declining trend of the rate of profit and a tendency to slow down investment and renewal of fixed capital.

Discontinuous renewal of fixed capital is, therefore, one of the key determinants of the trade cycle. The difficulty is compounded by the fact that the productive capacity of the sub-branch of department I which produces means of production for the production of means of production, must normally be geared to the general demand for the renewal of fixed capital (at least in its social average). Thus while this sub-branch may be overtaken by peak demand at the moment of ‘overheating’, it will suffer from unused capacity during a considerable part of the trade cycle.110

12. MONEY CIRCULATION, MONEY CAPITAL AND MONEY HOARDING

One of the most ‘modern’ aspects of Marx’s analysis is the treatment in Volume 2 of the ‘commodity-money’ dialectic, and its correlation with problems relating to the reproduction of social capital and the trade cycle. Here, Marx fundamentally anticipates the Keynesian problematic of money hoarding, that is, withdrawal of money from the process of productive circulation (i.e. circulation geared to the realization and reproduction of surplus-value). Marx starts from the assumption that, in order for the process of reproduction to flow smoothly, all income generated in the production process must be spent on the commodities produced. Any additional purchasing power injected into the reproduction process at a given point must be expelled at another point, if the process is to continue in a balanced way.

Now, it so happens that the very functioning of the capitalist mode of production leads to periodic hoarding of money capital. We have already encountered this problem with regard to discontinous renewal of fixed capital. Marx points out that successive expansions and contractions of the circulation time of commodities – related to phases of the trade cycle – result in periodic expansions and contractions of money capital as compared with productive capital. In the same way, the shortening or lengthening of the production process itself (for instance, increase or reduction of the weight within the total product-mix of commodities requiring a lengthy production time) gives rise to contraction or expansion of the volume of money capital in circulation. The shorter the production time, the quicker will be the turnover of productive capital itself, and the smaller will be the money reserves which the capitalists have to throw into circulation, in order to cover the wages bill and their own consumption needs until the commodities worked upon in their factories are finished and sold. Conversely, a lengthening of the production time will result in a lengthening of the turnover time of capital, and an increase in the reserves of money capital and money revenue that have to be injected into the circulation process to maintain consumption until the production and sale of the commodities is completed.111

More generally, the harmonious flow of expanded reproduction is constantly threatened (not permanently upset, of course), because there are always capitalists who buy without selling, and others who sell without buying. Money is continually being withdrawn from circulation, and additional money is forever being injected. Only if these movements roughly cancel each other out will the partially autonomous character of the money flow not conflict with the need to realize the total value of commodities produced.